ECB's Draghi faces German lawmakers over bond plan

Wednesday, 24 Oct 2012 | 8:38 AM ETThe Associated Press

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BERLIN -- The European Central Bank's president has told German lawmakers that his controversial bond-buying plan won't create inflation and will not allow struggling countries to backslide on economic reform efforts.

Mario Draghi went to the German Parliament Wednesday to meet members of its budget, finance and European affairs committees. The ECB's plan to to buy unlimited amounts of short-term government bonds of troubled euro countries has met with skepticism in Germany and resistance from the head of the country's central bank.

The plan is aimed at keeping a lid on borrowing costs of indebted countries such as Spain and Italy. Draghi said in opening remarks released by the ECB that investors' "unfounded fears about the future of the euro area had to be removed."

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European Central Bank president Mario Draghi meets German lawmakers Wednesday as he tries to win over public opinion for a controversial bond-buying plan that is designed to keep a lid on the borrowing costs of indebted countries, such as Spain and Italy.

Last month, the ECB announced its intention to buy unlimited amounts of short-term bonds of troubled euro economies, but its plan met with skepticism in Germany and resistance from the head of the country's central bank. The bond-buying will be triggered when countries apply for help from European rescue funds _ which impose conditions for granting aid.

Draghi plans a closed-doors meeting in Germany's Bundestag, or lower house of Parliament, with members of the budget, finance and European affairs committees. He and the Bundestag's speaker, Norbert Lammert, plan to make public statements afterward.

Even though the government of Chancellor Angela Merkel supports the plan, Bundesbank President Jens Weidmann argues that they come too close to using the ECB's power to print money to support governments' finances directly, which the bank isn't allowed to do. And there are worries in Germany that unlimited bond purchases could undermine the ECB's official mission of fighting inflation.

Joerg Asmussen, an ECB executive board member who was previously a German deputy finance minister, told ARD television that "we are clearly within our mandate" and that Draghi, an Italian, considered it a "great honor" to appear before the country's lawmakers.

"Firstly, he will listen to lawmakers' concerns about the policy of the ECB; secondly, he will explain what we are doing, that we are an independent central bank that makes decisions for the eurozone as a whole," Asmussen said. "And he will discuss with lawmakers how they see the road to completing the currency union."

No country has yet sought to tap the new ECB program, though Spain faces pressure to do so amid unrelenting economic gloom. Germany's Parliament would have to approve any application for money from the 17-nation eurozone's own rescue funds.